The controversy over Medicare reform

Tami Luhby

Wednesday, December 5, 2012 - 1:00am

New York (CNNMoney) — As President Obama and House Republicans tussle over a debt reduction deal, Medicare reform is back in the spotlight.

The health insurance program for seniors is among the largest drivers of deficit growth, experts say. Medicare spending, which totaled $492 billion in 2012, is expected to hit $895 billion in 2022, according to the Congressional Budget Office.

Only 37% of Medicare spending is covered by payroll taxes, which goes to cover hospital coverage. By 2024, this portion of Medicare will not be able to meet all its bills. But doctors' visits and prescriptions are funded from the government's overall tax revenue and premiums that seniors pay. The federal government picks up 42% of total Medicare spending, while seniors' premiums cover 13%.

While there's little chance that comprehensive Medicare reform will take place by year's end since neither Republicans nor Democrats are laying out any firm plans, experts say there are measures lawmakers can take to start reducing costs.

Raise premiums for the wealthy: There's at least one place where conservatives think the wealthy should pay more: their Medicare premiums.

Rich seniors already shell out more for Medicare. The vast majority of seniors pay $99.90 a month, or 25% of the cost of their Part B medical insurance, with the federal government picking up the rest.

But those with incomes above $85,000, and couples making double that, pay between 35% and 80% of the expense. Single seniors with modified adjusted gross incomes greater than $214,000 paid the most at $319.70 a month. Wealthier seniors also pay more for their Part D drug coverage.

One way to do boost premiums further has been advanced by the Heritage Foundation. The conservative group proposes requiring single seniors who earn more than $55,000 and couples who earn more than $110,000 to cover even a greater share of their premiums. The 3% of Medicare beneficiaries who earn $110,000 if single, and $165,000 if married, would pay the full amount. This plan would save roughly $204 billion over five years.

In an interview with CNN's Candy Crowley Sunday, Treasury Secretary Timothy Geithner mentioned a premium increase as part of the administration's $350 billion in health-related spending cuts. The proposal includes "raising premiums modestly for higher income Medicare beneficiaries," he said.

Raise eligibility age: Also under discussion is raising the eligibility age for Medicare, as lawmakers have done with Social Security.

Seniors can enroll in Medicare at 65, but cannot collect their full Social Security benefit until they hit 66. (Those born in or after 1960 must wait until 67 to collect full benefits.)

Just how far to raise the Medicare eligibility age remains part of the debate. Bumping it up to 68 would save nearly $53 billion, according to Heritage.

Cost cutting: The Obama administration believes billions can be saved by making Medicare more efficient. Its Affordable Care Act contains $716 billion in cuts to insurance companies participating in the Medicare Advantage program, hospitals, skilled nursing facilities and other providers. The president's health care reform law also created an independent board charged with keeping costs under control if they exceed a preset cap.

"We propose to get the government much smarter in how it purchases medicine," Geithner said Sunday.

Some experts say even more can be done to shave costs. Cutting the amount of Medicare waste in half could save roughly $400 billion over a decade, said David Kendall, senior fellow for health and fiscal policy at Third Way, a centerist group.

"We should exhaust all possibility of eliminating waste before we cut benefits," he said.

How can this be done? Third Way promotes moving away from traditional fee-for-service and rewarding doctors for monitoring patients' health and preventing hospitalizations. This would include giving patients better access to their doctors through email or telephone to avoid needless office visits or emergency room trips.

Also, doctors' care should come with a 30-day warranty, designed to prevent mistakes and re-admittance to hospitals or nursing homes. Bundling payments to specialists treating a patient's illness would also lead to more coordination among doctors and hospitals and save money.

Third Way also supports giving doctors the opportunity to talk to patients about end-of-life care, a controversial idea in Obama's original health reform proposal that Republicans called "death panels." These discussions could also provide savings by making sure all those treating the patients know their wishes.

Another way to save money is to allow the federal government to negotiate drug costs. That could save less than $30 billion, said Josh Bivens of the Economic Policy Institute, a left-leaning organization.

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